Category:

Governance and Transparency

Understanding Guyana’s Central Bank Reserve Balances: An Insider’s Guide

by guyanabusinessjournal April 2, 2023

written by guyanabusinessjournal

Understanding Guyana’s Central Bank Reserve Balances: An Insider’s Guide

Joel Bhagwandin

Summary

The Bank of Guyana’s (BOG) capital and reserve account balances are not the country’s reserve. The reserve balances reflected on the Capital, Liabilities, and Reserves side on the Bank’s balance sheet are part of the institutional capital structure of the Bank. Conversely, the country’s reserves held by the Bank are reflected on the asset side of the Bank’s balance sheet―which constitutes market securities, special drawing rights (SDR) holdings, foreign balances, and gold reserves. Furthermore, it is essential to note that reserve management is one of the core functions of the central bank to meet its objectives which include price stability, meeting inflation targets, and exchange rate stability. Within this framework, it is also important to highlight that central banks exist to achieve the policy objectives prescribed in their respective laws. These cover monetary policy and systemic stability targets in pursuit of broader macroeconomic objectives. Therefore, rather than resource utilization or profitability efficiency, policy effectiveness provides the basis for central bank accountability.

Background

A recent news report posited that the Bank of Guyana’s profit could not meet the country’s reserve. The report cited a negative balance on the bank’s balance sheet as of February 2023, which was $12.1 billion. However, the explanation in the article attributed to this negative balance was without any analysis and, more so―void of an understanding of the purpose and function of the central bank’s reserve.

This article, therefore, seeks to address this issue by attempting to provide a sufficient explanation grounded in academic literature in terms of the purpose and function of the reserves and the implications of a negative balance.

Discussion and Analysis

The Bank of Guyana’s (BOG) capital and reserve account balances are not the country’s reserve. However, the reserve balances reflected on the Capital, Liabilities, and Reserves side on the Bank’s balance sheet are part of the institutional capital structure of the Bank.

Conversely, the country’s reserves held by the Bank are reflected on the asset side of the Bank’s balance sheet―which constitutes market securities, special drawing rights (SDR) holdings, foreign balances, and gold reserves. As of February 2023, the BOG’s total foreign assets stood at G$168.4 billion or US$807 million. This also corresponds to the net international reserve as per the “International Reserves and Foreign Assets” table 3.2 in the bank’s statistical report for February 2023.

Bank of Guyana Capital and Reserves

The capital and reserve balances of the central bank constitute several reserve accounts: the paid-up capital, general reserve fund, revaluation reserves, revaluation for foreign reserves, contingency reserves, and other reserves. Therefore, the referenced news report’s negative balance is attributed to the adjustments made in the revaluation reserve account. However, the revaluation reserves are not to be treated in isolation from the other reserve accounts of the Bank. Instead, it is treated as part of the bank’s total capital and reserve base―that is to say, the computation of the total reserve balance includes the balance in all of the reserve accounts, as previously mentioned. Consequently, any negative balance in the revaluation reserve will be reduced with positive balances in the other reserves, further offset by the net profit generated by the Bank.

While the gazetted statement of assets and liabilities for February 2023 reflected a negative balance of $9.1 billion, the statistical report published by the Bank for that month showed that the “other reserves” balance stood at $4.3 billion in the negative.

The revaluation reserve of the Bank reflects adjustments made for gains or losses derived from changes in the market value for the assets and liabilities of the Bank, specifically foreign assets and liabilities. To maintain the adequate capacity to fulfill its functions, the Bank has adopted a prudent approach to provisioning prescribed in the Bank of Guyana Act. Section 7 of the Act allows for deducting provisions before declaring profit and payment into the Consolidated Fund. The provision is to meet adverse market movements for investments held and other risks (market, credit, and interest rate) which may occur. So, for example, the bank holds gold as part of its total reserves. Gold prices tend to fluctuate based on market conditions which means that the price of gold at the beginning of the financial year may experience an upward or downward movement at the end. Therefore, whatever the market value of this asset at the end of the financial year, the adjustment is made accordingly, which is reflected either as a gain or loss in the revaluation reserves account. The same principle and practice apply to the Bank’s other financial instruments as part of its total foreign asset portfolio.

The gains and losses arising from a change in the fair value of available-for-sale assets are recognized directly in equity. However, when the financial assets are sold, collected, or otherwise disposed of, the cumulative gains or losses on the disposal are recognized in the income statement. To demonstrate this point, 2012-2021, 2013, 2017, and 2019 recorded losses of $4 billion, $953 million, and $4.2 billion, respectively. However, the cumulative gains and net profit for the same period amounted to $13.5 billion and $35.6 billion, respectively―as illustrated in the chart below.

Source: Bank of Guyana/Author

Concluding Remarks

Furthermore, it is essential to note that reserve management is one of the core functions of the central bank to meet its objectives which include price stability, meeting inflation targets, and exchange rate stability. Within this framework, it is essential to highlight that central banks exist to achieve the policy objectives prescribed in their respective laws. These cover monetary policy and systemic stability targets in pursuit of broader macroeconomic objectives. Policy effectiveness, rather than efficiency in resource utilization or profitability, provides the basis for central bank accountability.

About the Author

Joel Bhagwandin is a financial, economic, and public policy analyst. He is also an entrepreneur with over fifteen years of experience in the financial sector; corporate finance; financial management; consulting, and academia. He has provided insights and analyses on various public policy, economic, and finance issues in Guyana for the past 6+ years. He has authored more than 300 articles covering a variety of thematic areas. Joel has also written extensively on the oil and gas sector. Joel holds an MSc in business management with a specialism in banking and finance from Edinburgh Napier University. He is currently pursuing his second and third masters: 1) MBA (Finance) (Top-up) through Edinburgh Napier University, and 2) MSc. in Finance (Economic Policy) through the University of London.

References:

April 2, 2023 0 comments

Commentary Environment Governance and Transparency Oil Sector Policy

A sustainable approach to Guyana’s economic development

by guyanabusinessjournal March 29, 2023

written by guyanabusinessjournal

A sustainable approach to Guyana’s economic development

Cristina Caus

Last month, Guyana gathered leaders for a 4-day international energy conference to discuss how the oil & gas sector can harness the country’s development. Given the current global energy context, sustainability was the hot-button topic throughout the program and the conversations revolved around how can Guyana, an oil superpower in the making, explore and produce oil sustainably while remaining aligned with the world’s 2050 net-zero goals.

While some global powers, pushing their agendas toward carbon-free and clean energy projects, view the Caribbean oil hype skeptically, others are highly optimistic about the opportunities arising. Can an oil & gas-based economy be sustainable?

In a broader sense, sustainability is not an environmental-only term, as many think. It encompasses fulfilling the needs of the current generation without compromising the needs of future generations while balancing economic growth, environmental protection, and social well-being.

Since the oil & gas production rising in Guyana, the development of communities and renewable energy initiatives has been a focus for the key oil players and the government. Multiple achievements and promising plans were shared during the 2023 International Energy Conference in Guyana, all fueled by the nation’s petroleum industry.

ExxonMobil has invested in the community by partnering with local entities to engage with the community and address community challenges since 2012. The focus areas include the environment, STEM education, and women, youth and community empowerment. Over the past years, ExxonMobil Foundation invested more than US$10 million in Guyana for research, sustainable employment and conservation, collaborating with the University of Guyana to train Guyanese for sustainable job opportunities and expand community-supported conservation. The investment is also intended to support Guyana’s Green State Development Plan, the country’s 15-year development plan that aims, among other things, to diversify Guyana’s economy and balance economic growth with the sustainable management and conservation of the country’s ecosystems.^[1] President of ExxonMobil Guyana, Alistair Routledge shared during the conference that the US$160 million Ogle Operations Center, in construction at the moment, is proof of long-term investment in Guyana’s prosperity and sustainability. With the latest digital capabilities, this modern center in Guyana aims to control Exxon’s offshore operations and around 130 ex-pats are now training locals to build the future workforce. The company has comprehensive mentoring programs in place to ensure that Guyanese will run the operations in the near future.

CNOOC Petroleum Guyana Limited (CPGL) has been building communities in Guyana since it started its oil & gas activities. Liu Xiaoxiang, President CPGL shared the latest news on the 130 solar lights system donation to Moraikobai, the only indigenous village in Region Five. As part of the “building the partnership bridge” plan between China and Guyana, CPGL’s CSR initiatives are selected under four main pillars: developing Amerindian communities, promoting Education, the transition to Clean and Renewable Energy, and fostering Safe and Thriving Communities. To date, CPGL has planned and implemented over 30 projects across six regions in Guyana in addition to the Greater Guyana Initiative (GGI).

The Greater Guyana Initiative is a partnership with the Stabroek Block co-venturers ExxonMobil, Hess, CNOOC; and the People of Guyana. This is intended to support communities to help develop the local workforce, build human capacity, advance education and improve healthcare, and promote sustainable economic diversification for a growing Guyana. The Greater Guyana Initiative has funded a Hinterland Poultry Project valued at more than

US $608,000 to boost the poultry industry in the hinterland regions. This project, also called the ‘Egg Sandwich Project,’ is the first regional socio-economic project funded by the GGI. It is focused on enabling the hinterland residents to raise their local poultry capacity, thereby enhancing consumer access to high-quality local poultry products and economic independence.^[2]

A lot is happening in Guyana because of oil & gas “… because investing in Guyana means an investment in the region,” as the Minister of Finance of Guyana, Dr. Ashni Singh, highlighted. From investment in urban development to education projects and social infrastructure (such as the building of 12 new hospitals), the new Gas-to-Energy Project will address long-standing issues of high electricity costs. The government has allocated US $759 million for the development of the plants that are advancing this Gas-to-Energy project, set to significantly lower the cost of electricity, triggering rapid growth in industrial activity, and promoting a smooth transition to renewable energy sources countrywide.

The government has massive solar projects in store for the hinterland for 2023, part of Guyana’s Low Carbon Development Strategy (LCDS) 2030, which will benefit the coastal communities and the most remote areas. One of the initiatives funded through a line of credit of US $7.2 million from the Government of India starts this year and will include 30,000 150-watt solar photovoltaic units with batteries and lighting kits being installed in hinterland communities.

All these projects and initiatives place importance on ensuring that Guyanese across the country benefit from the petroleum sector through revenue and investments in socio-economic development, which is a sustainable approach in essence. Case in point, what the Minister of Natural Resources of Guyana, Vickram Bharrat, has mentioned, “… the big powers built their economies on non-environmentally friendly practices. These are the same rich countries so concerned about the emissions that they are trying to limit production from natural resources. However, none offer help to small economies for the renewable energy transition, which requires massive government input financially.”

Now is the time and the place for countries like Guyana to ensure security for their people and the entire region by using the petroleum industry as a ladder to a sustainable future.

Cristina Caus is an international oil and gas business developer and consultant and holds a master’s degree in international business from Florida International University.

[1] https://corporate.exxonmobil.com/news/newsroom/news-releases/2018/0702_exxonmobil-foundation-invests-us10-million-in-guyana-for-research-sustainable-employment

[2] https://corporate.exxonmobil.com/locations/guyana/news-releases/031122_greater-guyana-initiative-puts-120m-to-hinterland-poultry-project

March 29, 2023 0 comments

Commentary Governance and Transparency Oil Sector Policy Private Sector and Business Opportunities

Is Guyana susceptible to the natural resource curse?

by guyanabusinessjournal March 26, 2023

written by guyanabusinessjournal

Is Guyana susceptible to the natural resource curse?

Joel Bhagwandin

Recently, a Jamaican economist argued that “Guyana could fall victim to the so-called ‘resource curse’ as it moves deeper in developing its oil and gas finds because it lacks strong institutions to prevent corruption. The economist went on to make some other outlandish and callous remarks wherein he argued that “Guyana is going to go nowhere,” political parties will soon start to squabble over the spoils to the detriment of the country, and that unless there are strong institutions―corruption and violence will ensue, etc.

Notwithstanding, the concerns raised by the economist present an opportunity to stimulate some meaningful and critical discussion and analysis on the topic―though, unfortunately, he failed in so doing as an economics lecturer―who lectures at the premier tertiary level educational institution in the Caribbean community.

What is the resource curse?

The paradoxical resource curse is essentially a theory that describes countries with oil or other natural resource wealth―that have failed to grow more rapidly than others without. Wright and Czelusta (2004) contended that the resource curse hypothesis seems anomalous since, on the surface, it has no clear policy implication but stands as a wistful prophecy. The authors argued that countries afflicted with the “original sin” of resource endowments have poor growth prospects.

How weak is weak?

To assert that Guyana’s public sector institutions are weak―is a subjective notion rather than an inference derived from an objective analysis of the evolution of public sector institutions in Guyana over time.

Historical overview of public sector institutions in Guyana

There was a study done in 1994 titled “improving Guyana’s public sector policy implementation capacity to facilitate private investment: an institutional analysis and technical assistance strategy.” This study presented a comprehensive analysis of the state of public institutions in Guyana almost three decades ago. In the report’s introduction, it was stated that “Guyana has only recently begun to emerge from the effects of more than 20 years of state-led socialism following independence from Great Britain in 1966. Guyana’s leadership closely controlled all economic activity, either directly through state-owned enterprises or indirectly through tight price, credit, and foreign exchange controls. The cost of economic mismanagement has been high: weak economic growth (less than 1% per year during 1966-89), massively deteriorated physical infrastructure, capital flight, lack of investment, a significant “brain drain” of human resources, increasing poverty, and a huge accumulation of debt compounded with debt servicing arrears. By the late 1980s, Guyana faced a crisis that its socialist leaders could no longer address with stopgap remedies. Fundamental changes in development strategy were called for, and the Government of Guyana (GoG) turned to the international financial institutions for help”.

The report noted that by 1994, “Guyana has been quite successful in turning the economy around over the past five years (1989-94), largely due to reforms that eliminated the system of government controls that restricted economic activity”. Another important element in facilitating the expansion of private sector investment, according to the report, was the public sector investment program (PSP), which intended to provide the necessary supportive infrastructure to make private investment both effective and, ultimately, profitable. Evidently, the 1994 study has shown that the public sector institutions in Guyana had undergone a complete overhaul in the early 90s, naturally to facilitate the transition from a socialist, centrally command economy to a market economy following the implementation of the Economic Reform Programme (ERP).

Another important point to note is that historically―during the socialist years that span some two decades, Guyana had, in fact, been a victim of the paradoxical natural resource curse―under the stewardship of the former government based on the foregoing description of the economic and political state of the economy at that time; which ultimately resulted in Guyana becoming a bankrupt state (as shown in the chart below).

Source: Bank of Guyana Reports/Author’s Calculation

It is the incumbent government that successfully reversed the economic prospects of the economy, inter alia, successfully steering the economy out of bankruptcy to economic stability―two decades later. Worthy of note is that this outturn could not have been achieved over the years without the consistent improvement and strengthening of public sector institutions to facilitate the buoyant and broad-based growth of the economy even before the discovery of oil.

Efforts have been made over the years to strengthen our public sector institutions, and the government continues to make the necessary investments. This is paramount. Two major challenges inherently characterize the weaknesses of public sector institutions, namely, human resources and employment of a modern Information Technology (ICT) framework within and across the public sector. The human resources limitations are largely attributed to our historic political and economic challenges wherein there was a lack of opportunities for our people who migrated by the thousands over the last few decades (the brain drain syndrome).

That said, of importance to note is that with the same institutions, it [evidently] depends on which political party is in government that knows how to competently derive the optimum results from these institutions. For example, let’s look at housing: the former government only delivered 7500 house lots in their entire five years term which translates to 1500 per annum. On the other hand, the current government―with the same ministry, and the same human and physical resources, delivered 21,000 house lots and turn-key homes in just over two and half years, which translates to 7,500 per annum―or 5 times more than the former government achieved in their entire five-year term.

Moreover, though the former government delivered 7500 house lots in 5 years, they did not have a proper housing program nor deliver any proper turn-key homes. Instead, the former government experimented with the ‘duplex’ concept, which failed miserably. In this regard, the former government failed to recognize that it would be difficult for any bank to finance the purchase of a duplex and for any insurance company to provide fire insurance coverage―because the design concept necessitated a special legislative framework (which was absent) to enable the banks to collateralize the units and the same for insurance.

Similarly, the same can be said for the other ministries and government agencies responsible for the processing of permits and other forms of approval and applications, which, under the former government, held up billions of dollars in investments that were subsequently unlocked following the change of government in 2020.

In the final analysis, there are inherent institutional limitations that are being addressed on an ongoing basis, and at the same time, despite the limitations, much is achieved as well with the perseverance and hard―around the clock work by the policymakers and the public servants.

There is no denying, however, what constitutes our developmental challenges and limitations. I think we have a deep appreciation and understanding of these realities and a deep understanding of what needs to be done―which is being done tangibly.

On the institutional strengthening side of things, several institutional reforms and capacity-building programs are being undertaken (too many to mention), such as improving the audit capacity of the Guyana Revenue Authority (GRA), the Auditor General’s Office, Ministry of Natural Resources and other government agencies, investment in the information technology infrastructure to modernize the entire public sector―that will aid the overall improvement in the provision of public goods and services efficiently; and thereby improving the ease of doing business. There is also the creation of new institutions to manage the oil and gas sector, such as the Local Content Secretariat, the Petroleum Commission, which will be established in due course, etc. These are just a few examples of some of the institutional capacity-building programs that the government is actively undertaking―but which will take time and resources to develop.

Conclusion

With all of the foregoing in mind, Guyana is not susceptible to the natural resource curse. The economist’s assertion that Guyana will suffer the natural resource curse because of weak institutions is highly unmeritorious and unscholarly. More so, when in fact―the incumbent government has a proven track record of successfully delivering the Guyanese economy out of a historical era of the natural resource curse. The incumbent government has demonstrated, drawing from its successful track record of good economic management, that it is pursuing the right type of economic policies and undertaking the much-needed investment in the economy―specifically in addressing the country’s infrastructure deficit, human resources constraints, education, and health care, energy and food security at the regional level, and ICT to name a few, that will enable the economic transformation to take place from a primary producing economy to a tertiary producing economy.

______________________

https://pdf.usaid.gov/pdf_docs/PNABQ757.pdf.

About the Author

Joel Bhagwandin is a financial, economic, and public policy analyst―and an entrepreneur with more than fifteen years’ experience in the financial sector; corporate finance; financial management; consulting, and academia. He is actively engaged in providing insights and analyses on a range of public policy, economic and finance issues in Guyana for the past 6+ years. He has authored more than 300 articles covering a variety of thematic areas. Joel has also written extensively on the oil and gas sector. Academically, Joel is the holder of an MSc. in business management with a specialism in banking and finance from Edinburgh Napier University. He is currently pursuing his second and third masters: 1) MBA (Finance) (Top-up) through Edinburgh Napier University, and 2) MSc. in Finance (Economic Policy) through the University of London.

March 26, 2023 0 comments

Commentary Environment Geopolitics Governance and Transparency Oil Sector Policy Publications Webinars

Unlocking Guyana’s Oil and Gas Potential: Balancing Energy Development and Environmental Stewardship

by guyanabusinessjournal March 8, 2023

written by guyanabusinessjournal

The Guyana Business Journal (GBJ) & Caribbean Policy Consortium welcome you to their Whitepaper Webinar Series, on Wednesday, March 08, 2023, at 10:30 AM EST.

Unlocking Guyana’s Oil and Gas Potential: Balancing Energy Development and Environmental Stewardship

See white paper here: Intersection of Energy_Environment in Guyana_Dr_Ulric_Trotz

Presenter: Dr. Ulric Trotz, Past Science Adviser, Caribbean Community Climate Change Centre, Belize

Executive Summary: In 2015, significant oil and gas reserves were discovered in Guyana, transforming the country into a major fossil fuel producer. Before this discovery, Guyana, like other vulnerable developing countries in the Caribbean basin, had been advocating for international attention to their exposure to emerging climate risks and for the adoption of policies and provision of necessary support for climate change mitigation and adaptation. These efforts led to a global agreement under the Paris Agreement in 2015 to limit the increase in global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the rise to 1.5°C, among other objectives.

In keeping with its obligations under the United Nations Framework Convention on Climate Change, Guyana developed a Low Carbon Development Strategy and a Climate Resilient Strategy and Action Plan that aim to achieve zero carbon status and climate resiliency in line with the Paris Agreement. However, the discovery of substantial oil and gas resources in Guyana now places the country in a seemingly contradictive position as both a current victim of climate change and an actor that exacerbates the problem.

To reconcile these roles, two factors need to be considered. Firstly, Guyana lacks the resources to build climate resiliency and transition to an affordable and sustainable energy system. Secondly, as the world transitions to net zero, Guyana has the opportunity to use its newfound wealth to implement both mitigation and adaptation strategies. The region can address regional energy and food security, internalize supply chains, and utilize the resources of Guyana, Suriname, and Trinidad and Tobago to facilitate progress in meeting their obligations under the Paris Agreement.

Given the low carbon intensity of Guyana’s oil and gas resources and the feasibility of production compared to global producers, there is an opportunity for Guyana to emerge as a major supplier of fossil fuels during the global transition to net zero. However, Guyana must ensure that its production of oil and gas meets the highest available environmental standards and that the resources accruing are used to facilitate the transition to net zero and to build climate resilience.

Discussants: Dr. Anthony Bryan & Dr. Thomas Singh

Moderators: Dr. David Lewis & Dr. Terrence Blackman.

March 8, 2023 1 comment

Commentary Governance and Transparency Oil Sector Policy

Beating The Resource Curse

by terrence richard blackman December 1, 2021

written by terrence richard blackman

Beating The Resource Curse

Terrence Blackman, Ph.D.

ExxonMobil initiated oil and gas exploration activities in Guyana in 2008. The company drilled, safely its first exploration well, Liza-1, in 2015. The Payara, Snoek, Liza Deep, and Turbot discoveries followed in 2017, and in 2018, ExxonMobil announced the Ranger, Pacora, Longtail, Hammerhead, and Pluma discoveries. The Tilapia, Haimara, Yellowtail, and Mako discoveries emerged in 2019, and in 2020 the Uaru, Yellowtail-2, and Redtail discoveries. The discovery rate of significant-high-quality oil wells on the Stabroek Block has been nothing short of amazing. The gross recoverable resource for the Stabroek Block is now estimated to be more than nine billion oil-equivalent barrels.

The sheer volume of these discoveries confirms that the Guyanese people are blessed with an opportunity for a fundamental societal transformation. However, to make it happen, Guyana must overcome the resource curse. Scholars have identified a resource curse that often befalls countries possessing significant reserves of resources of crude oil, rubber, natural gas, or rare-earth commodities. Economies with abundant natural resources grow less rapidly than natural-resource-scarce economies. Moreover, resource abundance frequently displaces the growth-essential manufacturing sector, leading to Dutch Disease. Countries see an appreciation of real exchange rates that negatively affect other economic sectors, especially manufacturing exports. In addition, they experience greater financial volatility as revenues are linked to global market swings. Marked increases in corruption and mismanagement often accompany this economic volatility. Some research even suggests that abundant natural resources is connected to a propensity for violent conflicts.

Guyana’s newfound oil wealth invokes optimism and worry and demands a strategy to prevent the resource curse. We share Sean Durns’ examples of four countries that beat the resource curse and identify critical components of a plan to ensure that Guyana beats the resource curse.

Canada holds the world’s third-largest oil reserves. It is also a significant mining power, the third-largest producer of primary aluminum and diamonds, and the top five for cadmium, molybdenum, nickel, platinum group metals, salt, titanium concentrates, elemental sulfur, and uranium. Canada has thus far managed to beat the resource curse. Their success is attributed to how regulations and oversight are implemented and applied. Royalties, taxes, incentives, permits, and licensing for oil and natural gas are done through provincial bodies. At the same time, a federal National Energy Board, which reports to Parliament, oversees the regulation and is partnered with respective provinces in offshore drilling.

In 2020, Chile’s copper mine production was estimated at 5.7 million metric tons of metal content, representing 28.5 percent of the global copper production that year.

\While the importance of copper to the economy certainly leaves room for susceptibility to commodity booms and busts, Chile has beaten the resource curse in large part due to an extremely high degree of transparency. Information on both operations and revenues is regularly published by the Finance Ministry, along with comprehensive looks at royalties, taxes, mining export values, production volumes, environmental assessments, and licensing petitions.

Norway’s approach to its vast oil and gas reserves has been to set aside the majority of its oil earnings from taxes on the petroleum industry and lease sales to private companies. Officially known as the Government Pension Fund Global (GPFG), the fund has the mandate of preserving and increasing Norway’s profits from oil for future generations. As a result, the government does not spend oil revenues – instead, the entire income from petroleum activities is invested in the fund. As a result, the government will only dispose of the expected yearly return on the fund, which was limited to 4 percent by its 2001 fiscal policy and reduced to 3 percent in 2017. Mindful of the challenges associated with abundant non-renewable resources, the Norwegian government chose this approach to prevent the country from falling victim to the resource curse while extending the benefits these resources confer beyond short-term gains. This mindset — along with concerns about currency appreciation and cash inflows becoming too tightly intertwined with the government — has prevented public officials’ wealth concentration, currency appreciation, and mismanagement and corruption.

Botswana, Africa’s top diamond producer, sits second in the global list of producers of diamonds. Yet, in stark contrast to many other resource-rich African countries prone to conflict and corruption, Botswana has beaten the resource curse. The export contribution of mining is highest in Botswana, Sierra Leone, DR Congo, and Mongolia at 80–90% of total exports; however, Botswana has dramatically diversified its economy. In addition, it is one of the least corrupt countries on the continent. Botswana has also remained conflict-free, encouraging business growth, regional investment, foreign direct investment, and stable governance.

As new oil and gas resources continue to be discovered in Guyana, it is clear that Providence has bequeathed to Guyana a once in country’s lifetime opportunity for transformative development. Whether Guyana realizes this opportunity is, the evidence indicates, essentially an issue of governance. These examples from four countries from different world areas, each with a different culture and history, offer concrete insights into how Guyana can avoid the resource curse and its concomitants.

From Canada, we learn of the necessity for intelligent regulations and oversight, i.e., a regulatory system that’s apolitical and professional and minimizes political patronage. From Norway, we learn that setting aside a significant percentage of the oil earnings every year and taking out a portion of the interest earned on the fund to be used for public services prevents wealth concentration, currency appreciation, mismanagement, and corruption. It is important to note that the set-aside amount appropriate for an economy will vary with the country’s level of development—Norway was already an industrialized country when it discovered oil-it would be economically prudent for Guyana to spend a bit more upfront on things like infrastructure where it lags and has trouble diversifying as a result. Finally, we note that thus far that Guyana’s currency has been relatively stable, but the current inflationary trends need to be monitored carefully.

From Chile, it is evident that comprehensive transparency, i.e., regularly publishing information on operations and revenues, along with complete dissemination of royalties, taxes, mining export values, production volumes, environmental assessments, and licensing petitions, move us closer to beating the resource curse.

Finally, from Botswana, we learn that Guyana must pursue economic diversification; it must move revenues to other sectors to make the economy less susceptible to global markets and minimize internal conflict. We note here for a subsequent discussion that most of the Guyanese working population are employed in three sectors: Agriculture, Forestry, and Fishing; Wholesale and Retail trade; and Public Administration and Defense.

The course Guyana needs to chart to beat the resource curse is clear. But can she find the consensus and the courage to take it?

About the Author

Dr. Terrence Richard Blackman, associate professor of mathematics and a founding member of the Undergraduate Program in Mathematics at Medgar Evers College, is a member of the Guyanese diaspora. He is a former Dr. Martin Luther King Jr. Visiting Professor at MIT and Visitor of The School of Mathematics at The Institute for Advanced Study. Dr. Blackman has previously served as Chair of the Mathematics Department and Dean of the School of Science Health and Technology at Medgar Evers College, where he has worked for almost thirty years. He’s a graduate of Queen’s College, Guyana, Brooklyn College, CUNY, and the City University of New York Graduate School.

December 1, 2021 0 comments

Commentary Diaspora Engagement Education Governance and Transparency Guyana News Updates

To Charrandas, or not to Charrandas? The Socio-economic & Political Forecast for Guyana 2019: Economic Growth & Political Uncertainty.

by terrence richard blackman December 29, 2018

written by terrence richard blackman

To Charrandas, or not to Charrandas?

Dr. Carolyn Walcott & Dr. Terrence Blackman

This weekend the GBJ looks at the prospects for Guyana in 2019. Two weeks ago, GBJ writer Dr. Carolyn Walcott visited Guyana for a few days to take the temperature of Christmas at home before the big day. As expected, the city was abuzz with activity; traffic was jammed at almost every corner, and business seemed bright! GBJ walked down Regent Street, beginning our trek from Albert Street and ending at the corner of Orange Walk. There was scarcely room to walk. Merchandise spilled onto the pavements, and shoppers deluged vendors with purchases and inquiries. Pedestrians and motorists seemed to merge into a single mass consumed with the hype that is often associated with Guyanese Christmas. There were many bargains to be had, and businesses, particularly the retail businesses, seemed to be doing well.

Christmas is typically the largest economic stimulus for many nations worldwide, as sales increase dramatically in almost all retail areas. The GBJ, in a future report, will quantify the monies generated during the 2018 holidays. It will also estimate the percentage of the retail industry’s total sales in the year that is generated at Christmas, and the increase in employment typically needed to support the Christmas season.

On our walk through the city, the GBJ noted a few striking social changes to the city’s holiday atmosphere. Spanish is now a language frequently spoken by store attendants, and we noted, with interest, the deluge of Chinese enterprises that permeate the fabric of the new business landscape of Guyana. However, business appeared good for everyone as the Guyanese prepared for the Christmas holidays.

On Thursday, December 13, the GBJ attended the University of Guyana’s Press launch of its first publication. Entitled “Dynamics of Caribbean Diaspora Engagement: People, Policy, Practice,” the book is an output of the Diaspora Conference, which was held in June 2017. During the discussions, the issue of a business takeover by non-Guyanese emerged as both a question and a concern. However, it was quickly addressed by the Head, Office of Migration, Department of Citizenship, at the Ministry of the Presidency, Aubrey Norton. Norton assured the audience that Government was conscious of this phenomenon and remained committed to ensuring that Guyanese, including those abroad, received the appropriate incentives and the necessary support to develop and grow businesses.

The GBJ also noted, during its visit, the evident increase in international business interest in Guyana. Guyana’s impending oil future largely drives this activity. To assess the level of engagement of the citizenry in this regard, the GBJ held several brief conversations with a range of citizens, in particular, with those engaged in small businesses. Our conversations reveal a mix of optimism and uncertainty as many citizens remain unaware of how they can tap into the oil business. Many lack the expertise or access to expertise to develop their products and services to target inbound investors and external markets. One hairdresser opined that while Guyana’s business environment will likely receive a significant boost with oil, she doubts that ordinary citizens will reap any real socioeconomic benefits. Another citizen, a taxi driver frequented by GBJ reporter Carolyn Walcott, is no longer plying the Stabroek Market area for passengers. He now relies exclusively on driving Exxon Mobil employees to and from one of the worksites daily for substantially more than what he received waiting for passengers daily. “Life is better for me already,” the taxi driver beamed as he boasted of making over GYD 200,000 per month using far less effort. An academic, however, was less optimistic about the future. She shared that while the country was likely to advance economically, she was concerned that allocating resources toward basic infrastructure would likely not be prioritized. In a subsequent conversation with an official within Guyana’s energy sector, they noted that such infrastructure, i.e., improved education, roads, and hospitals, are all essential components of an emerging national strategic plan. That plan, according to the official, will be a blueprint for forecasting and visioning not only for the business environment but for Guyana’s sustainable development beyond oil.

GBJ returned to NYC on Dec 17. As we were preparing this story, news broke on Friday, December 21, 2018, that Guyana’s APNU/AFC coalition government had fallen after the success of a no-confidence vote in the National Assembly. A general election is likely in ninety (90) days. This was almost two years before President David A. Granger’s constitutional term is complete.

The collapse comes less than four years after the APNU/AFC Coalition, promising a new style of inclusive politics, defeated the PPP/Civic party that had held power for almost a quarter of a century. The ruling APNU/AFC coalition lost the no-confidence vote after the switch in the allegiance of a single lawmaker, Charandass Persaud, an Indo-Guyanese MP, belonging to the junior party, The AFC, in the coalition.

The APNU/AFC coalition had indeed been very slow in putting together a cohesive and coordinated framework to prepare the country for the first commercial production of oil, scheduled in 2020. Still, the success of the no-confidence vote has shocked all stakeholders, and it has completely rearranged the political landscape of Guyana.

This vote is likely to exacerbate the ethnic and racial insecurities that are endemic to the Guyanese socioeconomic, political, and cultural landscape. The two main political parties in Guyana, the PNC and the PPP, have traditionally and continue to be based along racial lines: one, the PNC, drawing support from the descendants of Africans brought to Guyana by the Dutch in the 17th century, and the other, the PPP, from the descendants of the Indians brought by the British a couple of centuries later.

Guyana gained its independence from Britain in 1966. In the first three decades of independence, the Afro-Guyanese-based PNC political party controlled the government. In 1992, the Indo-Guyanese party, PPP, gained the upper hand in the country’s elections. It controlled Parliament and the presidency until it lost elections to the APNU/AFC coalition in 2015. The PNC is the major party in the APNU/AFC coalition. This period of Indo-Guyanes rule led to widespread resentment among Afro-Guyanese, who were shut out of government and business, just as the Indo-Guyanese said they were before coming to power in 1992. Many Afro-Guyanese see this no-confidence vote as an unfair and to some extent, an underhanded attack on the Afro-Guyanese government. These feelings are being amplified because of its timing which coincides with the treatment for Non-Hodgkin Lymphoma in Cuba of the seventy-three-year-old President Granger.

There are deeper issues here that will be explored in future contributions to the journal. How does Guyana escape its racial insecurity trap? Evidently, both the Afro and Indo Guyanese and other communities, most notably the Amerindian community, need to be more effectively integrated into the governing apparatus. At the core, is our unchallenged but as yet unproven assumption that our political arrangement, i.e., (the British model of) parliamentary democracy, best serves developing countries in general and Guyana in particular. The literature reveals very scant evidence of its success in multi-racial and multi-ethnic contexts.

“Most experts on divided societies and constitutional engineering agree on several points. First, they agree that deep ethnic and other societal divisions pose a grave problem for democracy and that, ceteris paribus, it is more difficult to establish and maintain democracy in divided than homogenous societies. Second, the experts agree that the problem of ethnic and other deep divisions is greater in countries that are not yet democratic or not fully democratic than in well-established democracies.” — Arend Lijphart[1]

[1] Lijphart, Arend. 2002. “The Wave of Power-Sharing Democracy” in Andrew Reynolds, ed., The Architecture of Democracy. Oxford: Oxford University Press, p. 37.

We note here that the class-based commonality that allowed Cheddi Jagan and Linden Forbes Sampson Burnham to form the PPP quickly collapsed at its first test. The same is true of the political arrangements of Fiji, Malaysia, Indonesia, etc. The steady line of doomed third parties, essentially class-based structures, suggests that addressing ethnic insecurity is the predominant political obstacle to harmonious development. It is unlikely that political arrangements that fail to confront this dimension will succeed. We observe that Malaysia, and to a lesser extent Singapore, have explicit ethnic quotas and references in their constitution, institutional structures, and political representations arrangements.

We are reminded at this juncture of the mythical, last “grand bargain,” which was rumored to have been under very serious consideration between Dr. Cheddi Jagan and President Linden Forbes Sampson Burnham at the time of his death in August of 1985. The rumored deal was supposed to have resulted in the appointment of Dr. Jagan and others in a Government of National Unity, which would have extended for an indefinite period. It should be noted for the record that Dr. Jagan had consistently made calls for a government of National Unity.

The GBJ strongly believes that the success of the no-confidence motion and its aftermath, coupled with the emerging oil economy, has once again provided the key stakeholders with the opportunity to act boldly to seize a “grand bargain” that would see a genuine Government of National Unity preside over the emerging oil economy for the next six years. The broad outlines of the marriage of the economic, security, and environmental bonafides of the three key ethnic groups and their potential impact on Guyana’s social cohesion are clear. The GBJ believes that a movement of this type in the political sector now would provide the impetus for robust economic growth in 2019.

In closing, we are encouraged by the many appeals for calm among all parties involved in moving Guyana forward. The GBJ believes that Guyana’s national stability is paramount. We believe that political instability leads to a climate of uncertainty which undermines possibilities for business growth in Guyana. We believe that the Guyanese institutions, in particular its courts, are strong and that they will rise to the challenge of adjudicating the matters which will come before them during this period. We urge the leadership on both sides of the aisle to maintain a spirit of dialogue and respect for our democratic practices and the rule of law. Finally, we wish you and your families a peaceful, productive, and above all, prosperous 2019.

December 29, 2018 3 comments

Newer Posts

Older Posts